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The psychology of a spinoff

The act of a spinoff can and does have unintended negative consequences if the psychological—and often emotional—impact on internal stakeholders is ignored.

From the beginning of time, man has been engineering a world in his own image.  The resources of time, money, and opportunity have and will continue to shape and reshape our corporate landscape. Growth is often seen as the result of strategic investments to acquire new skills, new territories, and new customers.  Prosperity is signaled by the constant drumbeat of company acquisitions that contribute to the expansion of the enterprise influence and capacity to seize market opportunities quickly and efficiently.

A consequence of expansion is corporate indigestion. As organizations morph into new entities in concert with shifts in market demand or disruptive technologies, the inevitable occurs—divestiture.  The outer boundaries of the strategic center are seen as inconsequential to the long-term ambitions of the organization, thus targeted for sale and separation from the core.

On the surface, spinoffs are molded by a sound strategic imperative, and the motivation is to strengthen both players in the separation.  What is good for the goose is good for the gander—we hope.

Like a spinning coin, there are two sides to every story.  Internally, the positive aspects of a spinoff can be intoxicating.  There’s the euphoric anticipation of success, fueled by the vision of leadership, endorsement by financial analysts, and general buzz in the marketplace. The run up to a separation is always in the light of resounding confidence and new heights of achievement.

A cautionary tale must be told.

The act of a spinoff can and does have unintended negative consequences if the psychological—and often emotional—impact on internal stakeholders is ignored.

We have studied great brands for decades and know what contributes to their success: At the core is culture, imbued with heritage, protected by authenticity, and sustained by relevance. Vigilance on the impact to employees who support and sustain these values is a prerequisite, not an afterthought. So consider these common problems on both sides of the split:

Separation anxiety

As an employee loyal to his or her employer, you wake up one morning to learn that you are soon to be orphaned from the “mother ship.” Human nature dictates that separation is rarely greeted with unbridled enthusiasm. The reality of being spun off—whatever the strategic reasons—invites thoughts of self-doubt about your role and value in a new organization.  The new spinoff company (aka SpinCo) will have a new culture, new location, new value proposition, new customers, new management, new compensation, new identity—all of which can be an equal source of excitement and anxiety. How this transition is managed dictates the direction and tone of your new organization.

Identity crisis

The reality of a spinoff is that the new entity is, by default, a smaller organization.  The employee viewpoint, if mismanaged, is that SpinCo will be less formidable, supported by fewer resources, and untethered to the reputation and heritage of the previous enterprise, therefore more vulnerable and untested.  It is therefore the mandate of leadership to address these whispers of uncertainty, so that the new culture is clear, confident, and motivated to embrace independence not to repel it.

Survivor’s remorse

There are almost always casualties during a spinoff, on both sides of the separation.  Restructuring and recasting organizations to better compete has a human toll.  The psychology of this loss is real, and organizations need to anticipate the impact the change has on those who remain. How the leadership expresses empathy and respect for the consequences of the spinoff will pay valuable dividends in securing a new chapter of employee loyalty and engagement.

Negative sentiments can greatly impede your success. How organizations manage the psychology of a spinoff will determine those that struggle and those that flourish in light of new opportunities. Riveted attention to the sentiments of the new organization and the parent company need to be the priority of leadership.

These guiding principles will help you manage the psychological fallout, building confidence to support a strong culture.

  • Leadership must be seen and heard frequently—overcommunicate and reassure people that you hear them.
  • Listen and learn. The voice of the employee is your cue to gauge how well people understand the motivations behind the split, and their willingness to embrace change.
  • Solicit questions, don’t postulate them. And build a communications strategy to address them efficiently and honestly.
  • Always start conversations on a positive note. Emphasize why the split is great for you, your customers, and your collective future.
  • Be empathetic and respectful when facing headwinds of discontent. Never be defensive.
  • Build an alumni network to honor and celebrate those who leave the business. By honoring the intrinsic value of those affected, you can mitigate natural questions of self-worth throughout both organizations.

And beyond being attentive to the needs of all players, give them something all them something strong and stabilizing to guide them through this process. An authentic, charismatic, and purpose-driven brand narrative will instill pride and excitement, foster a sense of identity, and rally the new organization around a shared growth opportunity.

The art of creating something new from something existing is challenging. The legacy of failure in spinoff is well documented.  The probability of success increases when organizations address the human, psychological implications of the transformation, in tandem with the business ones. Understanding the new culture and instilling brand at the heart will guard the ambitions of the spinoff against the threat of instability. Strong brands are built from the inside—everything you invest in empathy and communication, and a compelling brand story, will pay dividends in the form of happier people and a prosperous future.

Do you have a growth story to spin? Download our guide to a successful spinoff:

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Contributors

President, New York/San Francisco